Incentivizing Entrepreneurship and Investment:the Role of the BNDES

Mauricio NevesDeputy Director of Industrial Division

September/2014

The Productivity Challenge

Source: BID – ECLAC publicado em Arbix, Glauco; XXVI Fórum Nacional; Desacorrentando Prometeu; 2014

Productivity

How to increase it?

R&D as a Percentage of GDP (%)

Source: Arbix, G.; XXVI Fórum Nacional; Desacorrentando Prometeu; 2014

BNDES Corporate Strategic Map

Sustainable and Competitive Development

Expand investment in

infrastructure

Learning and Competences

Internal Processes

Financial Sustainability

Diversify and integrate financial

products

Promote best management practices

and corporate integration

Ensure the quality of organizational

climate and the alignment to the

institutional values

Contribute to social and

productive inclusion

Strengthen the capital structureImprove risk and return

management

Promote professional and

personal development of

employees

Enhance the staff management

with agreement of results and

performance evaluation

4

PI2. Fortalecer a imagem e a presença do BNDES

perante seus principais interlocutores e a sociedade em

geral

Strengthen the image and presence of the BNDES

with his main interlocutors and society in general

Fostering innovation, environmental sustainability and regional development

Induce strengthening the

competitiveness of Brazilian

companies

5

Innovation and Entrepreneurship: BNDES vision and guidelines

Stocks and

Debentures

Private

Equity

FundsVenture

Capital

Funds

Capital MarketCapital Market

Angel

Investors

IPO

Lines and Products

Eq

uit

yF

inan

cing

+Machinery and equipment

ExportsInnovation

Business Enterprise Projects Industrial Projects BNDES Card for

SMEs

Environmental Projects

Equity, Funds and Capitalization

…

PROFARMA for PharmaceuticsPROSOFT for IT

Special Programs

1) Multiple Tools for Companies of all sizes => Fostering the Entrepreneurial Ecosystem

FUNTEC –Technological Fund

7

A “horizontal” line of credit to support of innovation

Broader concept => We do not make distinction by degree and scope of innovation

or technological risk.

With certain priorities => Supporting innovative companies with a good growth

potential, perspective of internationalization and insertion in production chains

with increasing technological density

Analysis’ focus

Alignment with industrial policy Value Added

Impact on sectorial competitiveness

2) BNDES Innovation policy=>

focus on competitiveness

� BNDESPAR is always a minority and institutional shareholder;

� Fostering the developing of the Brazilian stock market, BNDESPAR requires that most invested companies commit to listing their stock and go public (IPO).

� Technical features of operations:

• Minority stake (ideally between 10 and 25%);

• Ordinary shares or convertible debentures;

• Pre-defined exit mechanisms (5 to 10 years);

• Shareholders Agreement.

Priority

SectorsO&GCapitalGoods

Infraestructure

LifeSciences

3) BNDESPAR Strategic Goals for Direct

Investments : Innovation and Governance

Company Coinvestors

� Crowd in => searching for developing the industry of private equity funds in Brazil, BNDESPAR’s often takes direct equity stakes in partnership with investment funds.

3) BNDESPAR Strategic Goals for Direct

Investments : Innovation and Governance

� Financing: BNDES innovation line

� FUNTEC: non-reimbursable funds for innovation, necessarily applied through an R&D Institute

� Financing: innovation

� Grants

� Industrial Policy � fostering innovation

When an international company decides to develop R&D activities in Brazil, grants and financing tools are available, as well as government incentives

Government Support

R&D Institute

Grants (Funtec)Grants +

Financing

IC Company (Subsidiary or JV)

ABC (International

Company)

Innovation

Financing

Local Partner (optional)

Equity

Equity

4) Fostering new links between economic agents of the Innovation System

Greenfield Pharma Projects

Debt (BNDES Profarma)

Direct Equity (BNDESPar)

Universities and research institutions

Grants and Venture Capital

Product

development(Pre-clinical

and clinical tests)

Process

development(scale-up)

Cell bank

development

Discovery/

ResearchProduction

4) Fostering new links between economic agents of the Innovation System. Ex: R&D for Biotech

71

583

0

100

200

300

400

500

600

Until 2011 2012-2013

BNDES support for biotech projects in pharmaceutics, US$ million Demand

Ministry of Health

FinanceBNDES

PROFARMA

RegulatoryANVISA

Industrial policy

strategy

Industrial policy

strategy

� Supporting greenfield projects that form the basis of our industrial insertion in the field of microelectronics

4) Fostering new links between economic agents of the Innovation System. Ex: Semiconductors

OTHERS

FINEPBNDES

CHALLENGES

GOVERNMENT

UNIVERSITIESAND

INSTITUTES

R&D CENTERS

OR STAFF

COORDINATION

COMPANIES

“QUALITY” OF THE PROJECTS

GESTÃO INTEGRADA

5) Fostering (EVEN MORE) new links between economic agents of the Innovation System

INOVA EMPRESA

Mar20132011

PAISS

INOVA PETRO

2012

INOVAAGRO

INOVA ENERGIA

MaiAbr

INOVA SAÚDE

2014 Jan

INOVA PETRO 2

Fev

PAISSAGRÍCOLA

Jun

INOVA DEFESA

Nov

INOVA SUSTENTAB.

Dez

INOVATELECOM

14

R$ 32,9 Billion

5) Fostering new links between economic agents of the Innovation System => “Inova Empresa”

Cellulosic material does not compete

with food, which will help to reduce

the remaining resistance and

contribute to foster the use of biofuels

in a even larger scale.

When integrated to the 1st generation

process, cellulosic feedstock may

increase the productivity by at least

40%. In the case of sugarcane, it may

be possible to reach more than 10,000

liters of ethanol per hectare.

5) Fostering new links between economic agents ofthe National Innovation System => PAISS results

Innovation and Entrepreneurial Challenge:

so what about cellulosic feedstock?

35 Business Plans approved will

result in a potential investment of

BRL 3.4 bn (~ USD 1.7 bn), which

represents a dramatic increase.

US$M

biofuelsdigest.com

5) Fostering new links between economic agents ofthe National Innovation System => PAISS results

0 500 1.000 1.500 2.000 2.500

After PAISS

Before PAISS*

Estimates of cellulosic ethanol production for 2015

(million liters)*

834

114

168

0 500 1.000 1.500 2.000 2.500

After PAISS

Before PAISS*

Estimates of cellulosic ethanol production for 2015

(million liters)*

2.115

168

0

Source: FO Licht, Nyko et al (2010) and BNDES.

(*) Before-PAISS estimates refer to 2014.

Due to PAISS cellulosic ethanol

projects and the delay or standtill of

US and EU projects, now Brazil can

celebrate a quite different scenario in

the race for advanced biofuels.

Previous estimates

for 2014

Current estimates

for 2015

5) Fostering new links between economic agents of the National Innovation System => PAISS results

Conclusion: Incentivizing Entrepreneurship

and the Role of the BNDES

• Innovation Ecosystem => focus on competitiveness reinforcing different players and their links

• Financial support => multiple tools providing incentives and customization

• Industrial Policy => adding other incentives (ex: governmental purchase power, etc.)

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